NPS is basically a kind of survey initiated by a company and directed towards their customers. NPS works on the simple concept that if you are happy with a product you are likely to recommend it to others as well. Although there can be a wide variety of questions; the customers rank the company on a score of 0-10. Customers giving 9 & 10 are termed as ‘Promoters’. Such customers are thought to be fully satisfied and repeated loyal customers who are going to promote the business thru positive word-of-mouth. Customers giving scores from 0 to 6 are ‘Detractors’ who are considered as unhappy customers. 7 and 8 are considered as ‘Passives’. NPS is an absolute number calculated as a percentage of these three values.
The ultimate question in NPS survey is: “How likely is it that you would recommend our company/product/service to a friend or colleague?”. There is however no standard way. Many companies modify the questionnaires while many other prefer a more detailed interaction with their customers. NPS acts an indicator of customer loyalty. The next and rather the main step is to benefit thru this metric. Interviews, follow-up interactions, enabling free text commenting etc. are some of the methods companies employ to gain further insight into their customer base. The goal thus becomes to use NPS score for converting ‘Detractors’ into ‘Promoters’.
How NPS works?
An important thing to remember is that NPS is just a number. In itself it doesn’t mean much. It has to be compared with some benchmarked value. For example, an airline should evaluate their NPS value in comparison with the highest ranking NPS airline. Furthermore, NPS changes from industry to industry. What might be considered as very low in airline industry might be high in for example in the communication industry. Another method can be to plot your NPS over time and see the trend and thus adjust accordingly. In a nutshell; proper evaluation methodology should be in place while calculating NPS.
Although NPS is criticized as being too simple to accurately and holistically capture customer behavior, its strength is actually its simplicity. Combined with the right customer expectation management and improvement strategy, NPS can be a great easily understandable starting point for companies to start improving themselves. Particularly in today’s competitive world where customers can just as easily shift to your competition; their satisfaction matters a lot. The more satisfied and happy they are the more loyal they will be and more are the chances that they’ll recommend someone to come to you as well.